Property prices are easing across the country, so why is it that just when the market is turning in the favour of buyers, many are now expressing concerns about jumping in?
May’s CoreLogic home value index results showed that national home values were down by -0.1 per cent over the month, fuelled mainly by price drops in Sydney and Melbourne.
Home values in Sydney have fallen by -4.2 per cent over the last year, while Melbourne’s have gone up by 2.2 per cent. There is evidence that things are cooling in Melbourne too however, with a -0.5 per cent drop in values in the month to May.
While those who own property never want to see prices falter, this is exactly the news that prospective buyers have been waiting years for.
Why the trepidation?
When property prices show any signs of weakness it’s understandable that many people want to sit on their hands and see if they can catch a great bargain when the market bottoms out. Or they may just be too scared to get into the property market out of fear of a bad investment or a long period of price declines.
How low can prices go?
If you’re waiting for a dramatic price fall then there’s any telling how long you could be waiting, and it might not even happen in the particular market you’re looking in.
There have been predictions from economists of peak-to-trough falls in Sydney and Melbourne of up to 10 per cent, however there’s no way of telling this for sure.
It’s unlikely that we will see a massive market crash due to factors such as high population growth, low interest rates and a strong economy keeping property in high demand across the two cities.
Prices are simply balancing out and returning to a more normal market. There has been huge price growth in Sydney and Melbourne in recent years and what we are seeing now is fairly typical of a real estate market cycle.
The CoreLogic graph below shows the period of time it took to recover from previous peaks in Sydney. As can be seen from the graph, it’s almost impossible to pick when the market will bottom out. It also shows that falls are nothing new and the property market will inevitably rise back up again at some stage in the future.
(Source: CoreLogic, June 2018)
Buy while prices are down
The great thing about the current market is that it has swung more favourably in the direction of buyers. Sydney and Melbourne buyers have been facing hard competition for a long time, and now is their chance to try and find a great deal, especially while there is also stamp duty concessions and low interest rates on the table.
If you’re a buyer and you’ve been biding your time waiting for the property market to improve then now might just be your best chance.
Focus on the long term
Once you have made a purchase resist the urge to constantly check the status of property prices. There might be month-to-month swings in property prices but what matters most is that you see growth by the time you want to sell.
It might take 5-10 years or more before you see any growth but at least in the meantime you will also have a home to live in, or will have been working towards paying off a major asset.